Homeowner rights after foreclosure expanded

PHOENIX — Arizonans who lose title to their homes in foreclosure actions are legally entitled to stay while they appeal, the state Court of Appeals has ruled.

In a precedent-setting decision, the judges rejected arguments by a bank that once it gets title to the property it can automatically evict the owners.

Instead, the judges said title to the property and eviction are two separate legal issues, ruling property owners are entitled to the same protections as tenants who appeal an eviction in a landlord-tenant dispute.

The ruling is not a license for those who default on their mortgages to remain indefinitely and without cost. The homeowners seeking to remain have to post a bond.

But an attorney for the Maricopa County couple involved in the case said that should equal no more than each month’s market rent, which he said, is likely less than the mortgage payments the owners could not meet.

The couple who brought the case executed a promissory note secured by a deed of trust on their home in 2008. The property went into default, and last year Tri-City National Bank purchased it at a trustee’s sale and received a deed for the property.

When the couple refused to vacate the property, the bank brought an eviction action against them in Maricopa County Superior Court. The couple objected, raising several issues dealing with the underlying sale of their interest in the property under the deed of trust.

When court Commissioner Michael Barth ruled in favor of the bank, the couple sought to stay their eviction while they appealed. But Barth said state laws and court rules on eviction allowing someone to remain apply only in landlord-tenant disputes.

Judge Patricia Norris, writing for the appellate court, said that’s not true.

She said the Arizona Supreme Court, in a 1982 decision, concluded tenants who are fighting an eviction are “entitled to possession pending appeal.” The only condition, Norris said, is the tenants have to post a bond “sufficient to cover rental value and all damages, costs and rent.’’

Norris acknowledged that the couple are not tenants in the same sense as fighting with a landlord. Instead, she said, they are “tenants at sufferance,’’ a term applied when someone who at one time had lawful possession of a property refuses to vacate after that interest is terminated.

But Norris said that, ultimately, that makes no difference.

Norris said the Legislature long ago expanded when eviction actions can be filed to specifically include incidents in which a property is sold at foreclosure.

The appellate court sent the case back to Barth to decide what bond would be appropriate. A hearing is set for this week.

Attorney Kyle Kinney, who represents the couple, acknowledged that the decision could be used by homeowners who are simply dragging their feet. But he said that is not the case here.

He said his clients filed a claim in federal court under Truth in Lending statutes saying that the lender did not disclose to them everything that is required under that statute.

“If certain disclosures aren’t made, then the homeowner has a right to rescind the deed of trust,’’ Kinney said.

“That deed of trust is the document that gives the bank the right to foreclose if there’s a default of payment,’’ he explained. “And so if you rescind the deed of trust, there’s no right of foreclosure.’’

Kinney said the federal court did not side with his clients. But he said the couple have other legal issues that he believes could undermine the bank’s foreclosure, which is why they want to remain in the house as long as they can.

One, he said, is a requirement in Arizona law that lenders, before a notice of foreclosure, must send a letter to homeowners explaining their options.